Question

1. the behavioral asset pricing model (bapm) was designed to address which limitation of the capm?

a. ignoring transaction costs
b. assuming investor rationality
c. using multiple risk factors
d. neglecting inflation expectations

1. the fama-french three-factor model includes which additional factors beyond the market risk premium?

a. size and value
b. momentum and profitability
c. liquidity and inflation
d. interest rate and leverage

Explanation:

• Question 15: The Capital - Asset Pricing Model (CAPM) assumes that investors are rational. The Behavioral Asset Pricing Model (BAPM) incorporates behavioral finance concepts, which relaxes the assumption of investor rationality.
• Question 16: The Fama - French Three - Factor Model includes the market risk premium, a size factor (small - cap vs. large - cap stocks), and a value factor (value vs. growth stocks).

Answer:

1. B. Assuming investor rationality
2. A. Size and Value